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Trading Company Establishment in Indonesia

Trading Company Establishment Indonesia

Trading Company: Import & export of goods

In case foreign investors would like to import or export goods into or from Indonesia they must setup a special type of trading company which allows them to perform such activities. In order to select the exact business classification, it is important to understand the exact business activity of the company. Depending on the business classification, investment restrictions may apply, or additional operational licenses may be required.

In this article we will discuss the three main types companies who engage in trading activities in their day-to-day activities in Indonesia:

  1. Distributor companies. This type of trading company will import goods into Indonesia and sell them on the Indonesian market
  2. Export companies. An export company will export Indonesian goods or commodities to foreign countries.
  3. Industrial companies. Industrial companies will can import raw materials into Indonesia and/or export final products to foreign countries

General establishment requirements to foreign investment Trading company

The Indonesian government has set a set of general establishment requirements which apply to all foreign investment companies in Indonesia:

  1. Minimum paid-up share capital. The minimum share capital in a foreign owned company (PMA) is 2.5 billion rupiah. However, this requirement is merely and administrative requirement. Therefore, at the time of writing, the government does not require this amount to be actually deposited in the bank account of the company.
  2. Mandatory investment amount. The Indonesian investment authority (BKPM) requires foreign owned companies (PMA) to invest at least 10 billion in the Indonesian economy and report the progress through the quarterly investment reports (LKPM). The investment amount excludes investments by the company in land and buildings.

Distributor trading company

The most common type of trading company is the distributor company. The distributor company can import all sorts of goods into Indonesia, however it is subject to two major restrictions:

Firstly, there is the foreign shareholder restriction, where foreign shareholders can only control a certain percentage of the shares. Per the negative investment list, foreigners can only own 67% of the shares in the company. Foreigners can be either foreign individuals or foreign companies. The remaining 33% of the shares must be owned by fully Indonesian companies or Indonesian individuals.

Secondly, there is the distribution restriction, where the trading company can only be engaged in wholesales of goods. The company is not allowed to sell directly to end customers. Therefore, sales to end customers can only be done by local companies. As a consequence, the foreign distributor company must setup a cooperation with a local company in case it wish to sell to end customers.

Both the requirement to appoint a local shareholder and to engage into a cooperation with a local company add to the business risk of foreign investors. It is essential that a foreign investor appoints a trusted shareholder and cooperates with a reliable local distributor company. PNB Law Firm provides nominee shareholder services for foreign investors, where we will appoint one of our fully controlled companies as shareholder in the distributor company. Using this option, the investors have full control over the company and they have the guarantee that there will be no shareholder dispute in the future.

Export only Companies

In case the trading company in Indonesia is only involved in the export of goods or commodities from Indonesia, foreign investors can setup a distributor company where the business activities focus on export only. This type of company has fewer restrictions, and allows 100% foreign ownership of shares.

Since the company activities focus on export of goods or commodities, the company cannot sell its goods to the Indonesian market.

Industrial Companies

The establishment of industrial companies is often more complex, for the following reasons:

  • Operation license. Industrial companies require a special operation license from the related ministry. The type of operation license depends on the type of industry and production process
  • Land and building licenses. Industrial companies require a factory which holds the required land and building licenses. The processing requirements of these licenses are regulated by local authorities.
  • Environmental license. Before the industrial company can start operations, it must be in the possession of an environmental license. The type of environmental license depends on the size of the land of the factory.

In most cases, the shares of an Industrial company can be 100% owned by foreign shareholders.